May Cities Joining a Governmental Association Allow Their Employees to

[Guest danwintz]

I apologize if this question has already been asked and answered, but I did not find it on this Message Board's history.

The Colorado Public Employees Retirement Association maintains a grandfathered 401(k) plan. Participation in the Association by cities is elective. May a city (which has not previously maintained a 401(k) plan) now join the association and allow its employees to participate in the 401(k) plan?

The following is an excerpt from the Association's description of the plan.

PERA's 401(k) Plan was established on July 1, 1985, to enhance the retirement savings opportunities of PERA members. The 401(k) Plan provides all Colorado PERA members with a vehicle they can use to voluntarily invest some of their income tax-deferred.

Any active and contributing member of PERA is eligible to contribute to the Plan from his or her PERA-covered earned income. Your 401(k) contributions are in addition to your mandatory PERA defined benefit contributions of 8% of salary State Troopers and employees of CBI contribute 10% of salary). You can choose to contribute from as little as 1 percent to as much as 23 percent of salary plus Section 125 plan deductions, or you may designate a dollar amount (a minimum of 1 percent of salary is required).

All comments will be appreciated.

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[Dowist]

Is PERA a state entity, or some trade association? If a state entity, you'll find that there are some rulings that say that other state entities may adopt a grandfathered state plan.

If some sort of trade association (and it doesn't sound like it is), I wouldn't think a "new" employer could be grandfathered by adopting the association's plan.

[Carol V. Calhoun]

We have a ruling request in for a client on that very issue, right now. And so far, the IRS doesn't seem to know quite what to do with it. They have made some suggestion that maybe it is okay if every city is required to join, but not otherwise, but it's not clear that is a consensus view. We'll keep you posted.

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